The increase in the minimum wage caused an increase in the consumption of electronics and leisure

The effects of increases in the Interprofessional Minimum Wage (SMI) on employment have been examined many times, and with the ensuing controversy, but until now, the impacts on other factors, such as consumption, have not been analyzed. This is what a study by the German institute IZA has now done, concluding that the 2019 increase in the SMI, from €735 to €900 per month, boosted household consumption.

Specifically, consumption increased by 4.5% during 2019, and, even more significantly, an increase in consumption focused on discretionary spending, which is undertaken once basic needs are met. The increase in electronics purchases is notable, growing by 20.2%, followed by leisure spending, at 11.7%, and consumption in restaurants and hotels, at 8.7%.

On the other hand, the only category that saw a significant decrease was food and clothing, with a 6.7% drop. For the report's authors, this reduction can be interpreted as "a potential substitution effect, with households shifting from home-cooked meals to eating out." This conclusion is reached considering that at the same time, spending on restaurants is increasing.

These are the data included in the Institute of Labor Economics (IZA) report on the impact of the increase in the minimum wage, written by economists Ignacio González of American University; Héctor Sala of the Autonomous University of Barcelona and IZA; and Pedro Trivín of the University of Milan. The conclusion is that lower-wage workers responded to the increase by redirecting their increased income toward non-essential products and services. “This increase in the minimum wage reflects a real improvement in family well-being. If there hadn't been this increase, they would have continued purchasing subsistence goods, such as food. Instead, they're experiencing an improvement, and it gives them breathing room to spend it on other areas,” Sala explains.

The increase in the minimum wage in 2019 increased consumption by 4.5%.

Their conclusion is very positive regarding the impact of the 2019 increase in the minimum wage, as it substantially improved the situation of lower-income workers, expanding their access to goods previously out of reach and stimulating consumption. "When income increases beyond the minimum necessary for basic needs, households tend to spend proportionally more on goods that provide pleasure or quality of life," Sala adds.

The study focuses on the 2019 increase in the minimum wage, the first in a long series that will bring the minimum wage to €1,184 in 2025. It does so based on two elements. On the one hand, the thousands of anonymous bank card transactions and payments at terminals throughout Spain, facilitated by Banco Sabadell; and on the other, the INE's Household Budget Survey. In this way, it can analyze both individual and household consumption, and in both cases, the results agree on this increase in consumption.